Anarchy and Tyranny in Idaho’s Homeowner Associations: Why we need new common interest property ownership regulation

May 1, 2012 | By: Jeremy O. Evans

Introduction

Idahoans prize their freedom.  Nowhere is that more clear than when private property rights conflict with the various forms of common interest property ownership known as the homeowners association ( “HOA”), condominium, planned urban development, or townhome.  In these common interest communities, each landowner has entered into a covenant and undertaken equitable obligations for the maintenance of common property, be it a road, swimming pool, shared roof, or narrow patch of grass.[i]  Conflicts between traditional property ownership and these more recent versions of common interest property ownership run along a fault line that lies directly between Idaho’s rural past and its fastest-growing suburban centers, where HOAs are most common.

Covenants are usually outlined in a document known as the declaration of covenants, conditions and restrictions, commonly called the “CC&Rs” or simply the “declaration.”  The owner may, by buying property subject to the declaration, agree to certain limitations on his or her use of the property.  In exchange, the owner obtains the right to require similar support and compliance from his or her neighbors.

This form of common property ownership is becoming more common in Idaho and throughout the country.  While new building has slowed in the last couple of years, the trend towards some kind of common interest property ownership in new development is still clear.[ii]  In a common property ownership setting, while the landowner retains many sticks in the bundle of rights appurtenant to private property ownership, some of those rights have been exchanged or were not assumed at purchase, by virtue of restrictive covenants.[iii]   These covenants are usually enforced by an elected board of volunteers.  Sometimes board conflicts with owners result in litigation.

When interpreting covenants, Idaho courts hold to the maxim that as “restrictive covenants are in derogation of the common law right of a person to use land for all lawful purposes” they should be interpreted and enforced narrowly.[iv]  However, this does not always go as expected for property owners.  Idaho courts have not always construed ambiguous covenant clauses against HOAs, despite this overarching rule.  Even though the HOA is the successor-in-interest, in many respects, to the declarant and could therefore be considered the “drafter” of the covenants, many covenant clauses are found to not be ambiguous. [v]  Furthermore, to the extent that a covenant restriction is found to exist, Idaho courts have strictly enforced the language of the restrictive covenants.[vi]  The resulting consequences for individual property owners can be dramatic.

A common law approach based on a narrow reading of covenants requires Idaho’s courts to dig deeply into each individual set of covenants presented and decide each case by application of the rules of contract construction to the nuances of the particular declaration language.[vii]  This seems somewhat nonsensical in a setting where homeowners accept covenant language only on a take-it-or-leave-it basis.  As a result, Idaho has a relatively large body of case law interpreting covenants without any legislative guidance on common property ownership.[viii]  But many HOA legal questions remain unsettled, and perhaps the judiciary should not be required to undertake this legal wrangling without guidance from the legislature.

Current HOA Law and the Beaver Springs Opinion

An example of Idaho’s common-law approach to restrictive covenants was on display this March when the Idaho Supreme Court parsed the governing documents of the Beaver Springs Owners Association in Ketchum.[ix]  The Weisel v. Beaver Springs opinion affirms many of the principles laid down over the years by Idaho courts regarding the interpretation of covenants, and illustrates some of the latent problems in Idaho’s common law approach.  Both sides were represented by counsel, and the arguments well developed for both parties.[x]

The facts in the Beaver Springs case are not unusual.   In 1983, Mr. Weisel, the owner of two adjacent lots in the upscale Beaver Springs development, sought to build a single building on both lots, and to have the two lots thereafter treated as a single lot by the association for setback, voting, and assessment purposes.   He entered into an agreement with the association board to that effect.  However, after gaining the association’s agreement and approval of his building plans, he did not build in what had previously been the setback zone dividing the two lots, and instead built on just one lot.

Decades later, Weisel sought to unwind his 1983 agreement with the association and subdivide his two lots so he could develop the empty lot.  In the intervening decades, despite the terms of the agreement, Weisel had paid assessments for each lot and exercised a vote for each lot.  Also during the prior years, the association had not uniformly enforced the setback requirements against other owners. No doubt the association’s directors elected in the intervening years had lost track of the agreement and been uninformed of its terms.  However, when Weisel applied for building approval for his second lot, the agreement resurfaced.

The association refused to grant Weisel permission to build, holding to the terms of the 1983 agreement and insisting that he stop development.  Furthermore, the association began holding Weisel to the single vote he had stipulated to in 1983.  In 2009, Weisel brought a legal challenge to these board decisions, and sought a refund of assessments he had paid on his second lot over the years.

After awarding Weisel his overpaid assessments, the district court granted summary judgment for the association on Weisel’s remaining challenges to the 1983 agreement.   The Idaho Supreme Court upheld the district court’s decision on appeal.   Consistent with prior Idaho cases, both courts looked specifically and in detail at the language of the 1983 agreement as well as at the particular language of Beaver Springs’ declaration.[xi]

On appeal, Weisel asserted that the 1983 agreement failed for lack of consideration.  Weisel argued that in 1983 the association lacked authority to deny his development plans because his plans ultimately did not violate the setback and otherwise conformed to the covenants.  As such, Weisel argued that the association’s approval did not constitute consideration.  The Court disagreed, holding that, due to the explicit language of the declaration, the association had “complete discretion to approve or disapprove construction.”[xii]  In other words, the association’s grant of its discretionary approval was sufficient consideration.

In a contract setting, it would be unusual for a court to honor a clause giving one party unlimited discretion to approve or deny the other party’s activities, especially when the form “contract” at issue shares many characteristics of a contract of adhesion.[xiii]  However, in the context of restrictive covenants, this is not unusual, and Idaho courts have routinely upheld the discretion and authority of volunteer boards granted in a declaration.   In Berezowski v. Schuman, for instance, the decision of an association architectural control committee (or “ACC”) was challenged by the owners.[xiv]  Not only did the Court uphold the ACC’s authority and discretion to make architectural determinations, the Court held that the internal ACC appeal process outlined in the community’s declaration was mandatory, so that “[h]aving failed to avail themselves to that remedy, [the owners] are precluded from challenging the ACC’s decision now.”[xv]   The Court effectively deferred to the discretion of these elected neighbors in the same way it would defer to a governmental administrative agency.[xvi]

Likewise, in an unpublished 2009 opinion, District Court Judge Mitchell read existing Idaho case law to mean that, in cases where violations of a restrictive covenant are shown, injunctive relief may issue merely on a showing of a violated covenant.[xvii]  The law requires no showing of “irreparable harm” as is usually the case when injunctive relief is sought.[xviii] This is a soundly reasoned rule and certainly facilitates the enforcement of covenants; however, the result of this abbreviated review is again to defer to the authority and discretion of an elected board of volunteers.

A second argument raised by Weisel on appeal in Beaver Springs shines the spotlight on a legal theory that the Idaho Supreme Court has considered as a limit to the power of restrictive covenants in Idaho.  Weisel raised a theory articulated in Ada County Highway District v. Magwire[xix].  In Magwire, the Idaho Supreme Court stated in dicta that “restrictive covenants can only be declared unenforceable because of a change within the restricted area itself.”[xx]  However, it does not appear that Court has ever applied this doctrine to invalidate a restrictive covenant in Idaho.

Weisel argued that the Court’s statement in Magwire was an implicit adoption of the “change of neighborhood” test, and that on those grounds the Court should invalidate the 1983 agreement (but not the declaration).[xxi]  Weisel’s attorney argued that the Beaver Springs neighborhood had changed dramatically since 1983, from a neighborhood where backyard chicken coops were anticipated, to one containing only large recreational cabins, guesthouses, and swimming pools.  The Court did not outright reject Weisel’s claim that this doctrine has been adopted in Idaho, but rather found the doctrine inapplicable to the 1983 agreement as it is “not part of a neighborhood development scheme” and it affects “only a relatively small number of lots.” [xxii]  In other words, in the future the Court may choose to apply the change of neighborhood test to invalidate restrictive covenants, but it will not apply the doctrine to invalidate an agreement between one owner and an association board affecting only one or two lots.

In a decision that will come as a relief to volunteer association board everywhere, the Idaho Supreme Court next held that Beaver Springs’ inconsistency over the years in enforcing the terms of the 1983 agreement (and the covenants) did not stop the association from finally, over twenty years after the agreement was made, rescinding Mr. Weisel’s second vote.  The Court came to this conclusion based on the statement of the declaration that a single lot gets a single vote.[xxiii] The important principle reinforced by this ruling is simply that mistakes made by a board in enforcing the covenants or in undertaking the business of the association will not be read to overturn the clear provisions of the declaration.[xxiv]

Finally, the Court awarded attorney fees to the association, relying solely on Beaver Spring’s declaration for its authority.  The declaration provides for fees to the successful party “[i]n any action to enforce any … covenant, restriction or condition.”  However, the case on appeal was an action that Weisel himself brought to void the 1983 agreement, and in which he had already successfully collected past assessments.  It was not what most would consider an enforcement action; nor was it based solely on the declaration.  So it appears that the Court interprets this fairly common declaration clause broadly to grant fees to the prevailing party in litigation between associations and owners.

The Need For Uniform Common Interest Property Ownership Law In Idaho

The Beaver Springs decision only illustrates a few of the problems that may arise from Idaho’s approach to common interest property ownership law.  The real problem is that most disputes are not litigated.  Those that are seem to lead to draconian results that do not encourage compromise by association boards.

Idaho homeowners need the legislature to set certain minimum standards for all forms of common property ownership.  On the one hand, residents purchase property in HOAs or condominiums with an expectation of ground rules, uniformly maintained neighborhoods, and accompanying assessments.  When these expectations are not met, potential liabilities arise for the associations.  Out-of state transplants and investors are bemused and puzzled when they find that the state law ground rules they expect to be in place simply do not exist in the “wild west” of Idaho HOA law.  As a result, they are often willing to litigate.  On the other hand, in a few cases a small clique of directors may selectively ignore Idaho corporate law and vague common law principles to go too far in the other direction, creating their own police state of assessments and fines with little accountability or control.  Neither problem is easily challenged without resorting to the courts.

Idaho could spell out much more clearly some general principles of fair play and transparency in all common interest property ownership regimes.  For instance, most associations are currently non-profit corporations subject to the Idaho Nonprofit Corporation Act.[xxv]  This is a start, however, the Act does not anticipate title-based assessments, requires consent for admission, and also allows a member to voluntarily leave the corporation.[xxvi]  It is simply inapplicable in many ways to ownership-based membership.  Solely clarifying situations when the Nonprofit Corporation Act does not apply to an HOA or condo association would be a worthwhile effort.

Moreover, an HOA and a condominium, both based on real property ownership, with elected homeowner boards, fines, and common maintenance expenses, share much more in common than an association shares with other types of nonprofit corporations.  Despite this, two neighboring associations may have completely different ground rules if one incorporated as a limited liability partnership, or failed to incorporate at all, and the other followed standard procedure to set up as a non-profit corporation.  The federal mortgage financing regime has already imposed some standardization on Idaho’s condominium associations by tightening the requirements for condominium associations to receive approval for federally-backed loans.[xxvii]  However, this only adds to the unnecessary distinctions in Idaho between the rules governing condominiums and those governing other forms of common interest property ownership.  Certain basic “rules of the road” could easily be outlined in statute and provide basic guidance and assurances to all types of common-interest property owners, both condominiums and HOAs of all stripes.

There are still many important questions that have not been resolved by Idaho’s judiciary.  For instance, Idaho courts have not yet defined the rights of minority property homeowners to not have the nature and character of their property rights fundamentally altered by amendments to a declaration of restrictive covenants.  As mentioned earlier, Idaho courts have not spelled out the standards a declaration-imposed dispute-resolution process or enforcement process must follow before an Idaho court will defer to it and require an owner to exhaust all association remedies before litigating.  There is no case law outlining transparency requirements for associations where association documents may differ from corporate documentation.

This is by no means an area where other states have been shy to impose their own laws on local associations.  Of Idaho’s six neighboring states, only Montana and Wyoming[xxviii] lack comprehensive association legislation.  Montana and Wyoming have bare-bones condominium legislation comparable to Idaho’s Condominium Property Act.[xxix] On the other hand, Washington[xxx] has a comprehensive battery of statutes addressing this topic.  Oregon’s condominiums and associations are also heavily regulated,[xxxi] as are Nevada’s.[xxxii]

There is no uniform data for accurately comparing the number of associations in each state, but it appears that the number of associations in Idaho is much closer[xxxiii] to the number in Utah[xxxiv] or Oregon[xxxv] or even to Nevada[xxxvi] than to the handful that exist in lightly-regulated Montana and Wyoming.  For this reason, the recent history of common interest property ownership legislation in Utah is instructive.

Utah has had a condominium act in place since 1968.[xxxvii]  In 2004, Utah also adopted a Community Association Act that addressed non-condominium HOAs.[xxxviii]  In recent years, a legislative action committee in Utah has attempted to introduce uniform common interest ownership laws that would unify condominium and homeowner association law.  This has resulted in the adoption of a number of measures that greatly enhance Utah’s Community Association Act, although no uniform act has been adopted to date.

During these same years, a number of bills have been introduced in the Idaho legislature that are comparable to Utah’s early attempts at common interest property ownership law, or are at least a step in that direction.[xxxix]  However, there has been no central driving force to these efforts, and for the most part even minor bills have not passed.[xl]  According to parties involved in those efforts, there is a fundamental disagreement about whether Idaho should quickly adopt small laws that address the largest common interest ownership problems, or whether Idaho should take advantage of its clean slate and adopt some version of a comprehensive law, modeled perhaps on the Uniform Common Interest Ownership Act (“UCIOA”).[xli]  This disagreement is compounded by the usual conflicting interests of various stakeholders.  Contractors, realtors, associations and homeowners all have a valid interest in legislation of this type.

In this lawyer’s opinion, if Idaho took a broad approach and adopted a version of UCIOA to fit Idaho’s needs, all stakeholders would have more room to negotiate and compromise.  The stakeholders with organize lobbies could finalize rules they long have been pushing for, and less-organized homeowners could be protected from injustice.  Quick fixes have not met with success in Idaho.  Furthermore, multiple rounds of short-term fixes may lead to further confusion, conflicting provisions, and ultimately more litigation.  A bill can and should be crafted that helps all of Idaho’s stakeholders and sets clear and uniform guidelines for all common interest ownership associations.[xlii]

Jeremy O. Evans manages the Boise office of VF Law, LLP, is a member of Community Associations Institute, and represents many homeowner and condo associations.  Jeremy has practiced in Boise for the last five years after practicing in Washington, DC, and Salt Lake City.  He loves skiing and camping with his family.  Jeremy is a graduate of Harvard Law School and Brigham Young University.

[i] For more information about Idaho HOA law, consult the May 2010 Advocate for a number of good articles, in particular, a superb analysis of I.C. § 45-810 and association assessment collections and lien powers by Jill Mazirow Eshman.

[ii] In 2008, Senate Bill 1399 attempted to regulate homeowner association meetings in Idaho.  It contained an estimate that “nearly 2,500 homeowners’ associations” had been created in Idaho and that “[s]ome 40 states have enacted or are considering legislation to clarify the relationship between the HOA and its members.”  SB1399 Statement of Purpose, www.legislature.idaho.gov/legislation/2008/S1399.html#billtext (accessed March 6, 2012).  There is no detailed Idaho-specific research published, however, a survey of homeowner association registrations at the Idaho Secretary of State’s Office shows that in the 1990s, an average of about 90 new HOAs registered each year.  After 2000, that number mushroomed to nearly 300 per year in the boom years of 2004, 2005 and 2006.  In recent years, registrations have again dropped, consistent with decreasing construction and development.  Nationally, Community Associations Institute, an HOA industry non-profit, estimates that from 2000 to 2011, association-governed communities in the United States grew from 222,500 to 314,200, with the number of total association residents growing from 45.2 million to 62.3 million during the same period.  www.caionline.org/info/research/Pages/default.aspx  (accessed March 6, 2012).

[iii] Meyer v. first National Bank of Coeur D’alene, 77 P. 334, 10 Idaho 175 (1904) (appellants cite Pomeroy’s Equity Jurisprudence for the proposition that “restrictive covenants in deeds, leases and agreements limiting the use of land . . . will be specifically enforced in equity…”); see also Payette Lakes Protective Ass’n v. Lake Reservoir Co., 68 Idaho 111, 121, 189 P.2d 1009, 1014 (1948)(holding that restrictive contracts limiting the use of property are enforceable).

[iv] Brown v. Perkins, 129 Idaho 189, 923 P.2d 434 (1996); Smith v. Shinn, 82 Idaho 141, 147, 350 P.2d 348, 351, (1960)(citing with approval 14 Am. Jur. 619 that “such contracts are strictly construed in favor of the free use of property.”)

[v] Compare Poe v. Little Blacktail Ranch Park Home Owners’ Association, Inc., Idaho Court App. 2008 (unpub’d Op. No. 433) (upholding the lower court’s determination that the association’s interpretation of an admittedly ambiguous declaration clause was correct); with Investors Ltd. Of Sun Valley v. Sun Mountain Condos., Phase I, Inc. Homeowners Assn., 106 Idaho 855, 683 P.2d 891 (Ct. App. 1984)(finding that the particular language of the declaration, construed strictly against declarant as drafter, meant that declarant’s successor-in-interest had no voting rights for unimproved lot).

[vi] Thomas Weisel v. Beaver Springs Owners Ass’n, Inc., 2012 Opinion No. 37, (March 1, 2012)(finding HOA has unlimited authority to approve or deny building permits); Island Woods Homeowners Ass’n v. McGimpsey, 2010 Unpub’d Op. No. 392, (March 24, 2010)(finding declaration requirement to build within 30 days of occupancy was not modified or excused by a construction and sale period exception); Thompson v. Ebbert, 144 Idaho 315, 160 P.3d 754 (2007)(holding that a lease entered into in violation of a restrictive covenant is void ab initio).

[vii] Weisel (2012) (holding that “when a court interprets a restrictive covenant, it is to apply generally the same rules of construction as are applied to any contract or covenant”).

[viii] See, e.g. Island Woods Homeowners Ass’n v. Mcgimpsey, 2010 Unpub’d Op. No. 392, (March 24, 2010) (affirming declaration’s validity and summarizing law); Jacklin Land Co. v. Blue Dog RV, Inc., 2009 WL 3287578 (Idaho Dist. Sept. 14, 2009) (finding injunctive relief is available ‘if breach of a restrictive covenant is shown.’); Birdwood Subdiv. Homeowners’ Assn. Inc. v. Bulotti Construction, Inc., 145 Idaho 17, 175 P.3d 179 (2007)(holding that a declaration is required to prevent further subdivision); West Wood Investments, Inc. v. Acord, 141 Idaho 75, 106 P.3d 401 (2005) (holding that an association can enforce equitable servitudes as against original promisor); Berezowski v. Schuman, 141 Idaho 532, 112 P.3d 820 (2005)(upholding an association’s enforcement decision); Shawver v. Huckleberry Ests. LLC, 140 Idaho 354, 93 P.3d 685 (2004) (finding that a declaration may be amended following purchase of the land, if the declaration provides for amendment); Ponderosa Home Site Lot Owners v. Garfield Bay Resort, Inc., 139 Idaho 699, 85 P.3d 675 (2004) (The association, and other owners, have an equitable servitude against the other condominium units); Sun Valley Land & Minerals, Inc. v. Hawkes, 138 Idaho 543, 66 P.3d 798 (2003)(holding that a formal association was required to give owners rights to common areas granted to the association); D & M Country Ests. Homeowners Assn. v. Romriell, 138 Idaho 160, 59 P.3d 965 (2002)(holding that I.C. §§ 67-6530 and 6531 do not nullify a declaration’s restriction of elderly or group homes); and Nordstrom v. Guindon, 135 Idaho 343, 17 P.3d 287 (2000) (holding that in absence of specific declaration language to the contrary, each owner gets one association vote, regardless of the number of lots owned).

[ix] Thomas Weisel v. Beaver Springs Owners Ass’n, Inc., 2012 Opinion No. 37, (March 1, 2012).  Plaintiff’s counsel in the case pointed out that Weisel won his claims for assessments in the lower court, but that his arguments about the association’s inconsistent enforcement of the setback rule over the years had little impact.  Telephone Interview with Fritz Haemmerle, March 6, 2012.

[x] Lawson Laski Clark & Pogue, PLLC, of Ketchum represented Beaver Springs, and Haemmerle & Haemmerle, P.L.L.C. of Hailey represented Weisel before the Supreme Court.

[xi] See, e.g. Investors Ltd. Of Sun Valley v. Sun Mountain Condos., Phase I, Inc. Homeowners Assn., 106 Idaho 855, 683 P.2d 891 (Ct. App. 1984)(finding that the particular language of the Declaration, construed strictly against declarant as drafter, meant that declarant’s successor-in-interest had no voting rights for unimproved lot).

[xii] Weisel (2012).

[xiii] See, e.g. Lovey v. Regence BlueShield of Idaho, 139 Idaho 37, 42, 72 P.3d 877, 882 (2003)(holding that “[w]hile a court of equity will not relieve a party from a bargain merely because of hardship, yet he [or she]may claim the interposition of the court if an unconscionable advantage has been taken of his or her necessity or weakness.”) (internal citations omitted).

[xiv] Berezowski v. Schuman, 141 Idaho 532, 112 P.3d 820 (2005).

[xv] Id. at 535, 112 P.3d at 823.

[xvi] Service Employees Int’l Union, Local 6, et al v. Idaho Dept. of Health & Welfare, 106 Idaho 756, 683 P.2d 404, 408 (1984) (upholding motion to dismiss under doctrine of primary jurisdiction, and listing cases);  State v. Concrete Processors, Inc., 85 Idaho 277, 379 P.2d 89 (1963)(outlining when judiciary will require a party to exhaust administrative remedies before turning to the courts).  Unlike well-developed administrative law principles, Idaho HOA case law still lacks a clear explanation that the courts will defer to a covenant-based association only when the association follows a process that allows adequate due process rights to all parties.

[xvii] Jacklin Land Co. v. Blue Dog RV, Inc., 2009 WL 3287578 (Idaho Dist. Sept. 14, 2009).

[xviii] Id. at *8 (denying challenge based on plain language of I.R.C.P. 65(e)).

[xix] Ada Co. Hwy. Dist. v. Magwire, 104 Idaho 656, 662 P.2d 237 (1983)

[xx] Id. at 659, 662 P.2d at 240 (citing nonbinding authorities, and concluding that “[t]he fact that a particular piece of property would increase in value if used for a different purpose than that allowed in the covenant is not enough to invalidate the covenant.”)

[xxi] Weisel v. Beaver Springs (2012).

[xxii] Id.

[xxiii] The language of the declaration is not as clearly “unambiguous” as the Idaho Supreme Court’s decision lets on.  The opinion makes no explanation of the distinction between the term “Lot” that is defined in the declaration and the term “parcel” that is not defined, but that is used extensively in portions of the declaration relied on by the Court.  In the Court’s analysis, the statement “the combined parcels shall be deemed one parcel…” is read to mean the “[combined] Lots become one Lot.”  As declarations often contain gaps in formal language like this that are seized upon by one party or another, it is encouraging that the Court is inclined to use common sense to find what the “plain language” of a declaration was intended to mean.  But see Brown v. Perkins, 129 Idaho 189, 923 P.2d 434 (1996)(holding that restrictive covenants should be read to best permit the free alienation of property).

[xxiv] An interesting contrast is found here to the situation the Idaho Supreme Court faced in Leppaluoto v. Warm Springs Hollow Homeowners Assn., 114 Idaho 3, 752 P.2d 605 (1988).  In Warm Springs Hollow, the declaration clearly states that each owner must be assessed the same amount per lot.  However, the condo association found itself in litigation with a bank over past assessments owed on foreclosed units.  The board decided to accept a smaller assessment amount from the bank to settle the litigation.  In a situation not uncommon for associations, another owner then challenged the board’s decision in court, demanding